The relationship between fintech and music is significantly growing. According to Yahoo Finance, economists have valued the fintech market at a whopping $7301.78 billion, with an expected growth of 25% in the coming years. There are many benefits to fintech's growing influence in music for musicians.
These include artists becoming independent, owning the rights to their music, avoiding hidden record label expenses, and running their businesses on their terms. Fintech may also break down the barriers to entry—such as rigid contracts—set by record labels, enabling musicians to enter the market significantly easier.
Here are some ways fintech will affect the music industry:
1. Catalog Investments
Over the past couple of years, investors have begun purchasing and selling music catalogs. Bob Dylan, who needs zero introduction, sold off his entire catalog for between $150 to $200 million fee to an investment fund. Depending on which catalog it is, it could go for anywhere from a few thousand to tens of millions.
So, why would a musician spend their entire life building an incredible catalog and then selling it to random investors? It’s as simple as this: musicians aren’t selling the rights to everything they earn.
For example, Bob Dylan can still make millions from touring the world. The COVID-19 pandemic forced many musicians to stay at home. As a result, it made some sense to sell their catalog for millions before writing more music.
To own a music catalog, the investor has to purchase the ‘copyright.’ Once they have that, the music becomes their asset. In essence, catalog investors see music investment as a real estate investment: an asset that’ll pay for itself before eventually making a profit.
Catalog investors earn from licensing when commercials and movies play the songs. In addition, when podcasts play the music—and podcasts have become hugely popular—they’ll also earn royalties.
Catalog investment is also a popular option for investors seeking to diversify their portfolio from standard investments, including businesses, properties, bonds, stocks, crypto, etc. Investors have realized that musicians are willing to sell their catalogs, leading to significant interest from hedge funds.
Is it a bubble? Investors like Primary Wave, Majors, and Hipgnosis don’t think so.
Non-fungible tokens (NFTs) are a specific type of crypto asset that enables musicians to prove ownership of digital or real items. In 2021, NFTs were a global phenomenon. Although cryptocurrency has taken a hit since the highs of 2021, NFTs remain popular, and their influence on the music industry is growing.
Here’s how NFTs work in music: an artist creates a piece of music before attaching it to a blockchain, such as Ethereum. Fans can purchase NFTs online and use them however they want. Subsequently, the music becomes part of the blockchain, making it immutable, secure, and copyright free. It’s not possible to steal it from the owner (a huge benefit of NFTs).
Music NFT creators can determine how many copies exist of their songs. Once people buy these songs from the musician, they can trade them on a crypto exchange that backs NFT trading. As more and more people purchase, the value of the NFT increases, resulting in financial gains for all parties.
Musicians can create NFTs through a service like NFT showroom or OpenSea. They enable musicians to make and sell NFTs without any knowledge of programming and a small budget, something that affects many beginner musicians. Alternatively, they can use a platform like EOS or Ethereum to automate the sale of NFTs.
So how are NFTs changing music?
First, NFTs allow artists to earn without a record label earning a significant portion of their profits.
Second, NFTs enable musicians to sell event tickets to fans without a third party—such as Ticketmaster—taking a significant portion of their earnings.
Third, NFTs are decentralizing the music industry by minimizing fraudulent activity and enabling safe and convenient purchases.
Fourth, NFTs enable musicians to give their fans exclusive access to their music. That helps them build a stronger connection with loyal fans.
All in all, NFTs are creating some positive changes in the music industry. The music industry estimated the music NFT market to be worth $1240.3 million in 2021; however, that should increase to 42,380.2 million by 2032.
3. Royalties Management
Musicians have always used royalties to leverage an income. However, many musicians have struggled to make an income since the early 2000s when music became simple to download or stream.
In 2021, SoundCloud launched an industry-first ‘Fan-Powered Royalties’ platform. This monetization method gives royalties from individual subscribers' monthly payments to the artists they listen to. That’s a significant difference from the classic ‘pro rata’ or ‘big pot’ streaming royalties model used by Spotify and other major companies.
For instance, Spotify uses all royalties paid by users and centrally pools them with a service before sharing them based on the artist's market share across the entire platform. This model has caused controversy, with many musicians lamenting the lack of financial benefits.
Since the launch of SoundCloud fan royalties, 135,000 independent artists earn money through Fan-Powered Royalties. As a result, there’s been a 30% growth in musicians using Fan-Powered Royalties to make their income since March 2021. Soundcloud also suggests that artists earn 60% more through Fan-Powered Royalties than the traditional pro-rata model.
Record labels also have the option of royalty management for their musicians. However, it can be challenging for record labels to determine royalties due to various music and laws in each nation.
That’s why royalties management software is the best option for record labels. By having the right tools to monitor royalties, record labels can remove stress and avoid legal issues.
The growth in fintech throughout the music industry is momentous. For decades, musicians have been underpaid and wondering how to boost their income. But, with the development of fintech in music, this is already changing.
At Reprtoir, we’re helping music professionals stay on top of the current market trends. Our royalty software manages royalties, resulting in saved time, less stress, and greater efficiency.